Consumer watch: Tax basics for the troops - Refunds, credits, extensions, free help and more

Jan. 26, 2012 - 01:24PM
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Last Updated: Jan. 26, 2012 - 01:24PM |

Where to get help

Tax centers on military bases. They’re often separate from the legal assistance office, but that office can tell you where the tax center is. Anyone with a military ID card is eligible, although tax centers may not be able to help with particularly complex returns, such as for business owners or those who own multiple rental properties. These tax centers operate under the IRS Volunteer Income Tax Assistance program.Military OneSource access to free online tax preparation. The Defense Department pays to provide H&R Block At Home. To use it for free, those eligible must use the link on Military OneSource to create an account, or use their existing login credentials if they used the program last year. Do not go to the H&R Block website to create an account.Military OneSource access to trained tax consultants. Call 800-342-9647 and ask to speak to one. They’re available seven days a week from 7 a.m. to 11 p.m. EST. For online assistance, email TaxQuestions@militaryonesource.com.Volunteer Income Tax Assistant Program. Additional IRS-certified volunteers can help prepare your return at locations around the country. The program is designed to help low- to moderate-income taxpayers. To find the nearest VITA location, visit IRS.gov or call 800-906-9887 or 800-829-1040.

The Internal Revenue Service has given you a gift of sorts — an extra two days to pay your taxes.

The due date this year is April 17, rather than April 15, because the 15th falls on a Sunday and April 16 is the Emancipation Day holiday in the District of Columbia.

But many in the military file as early as possible anyway, because they know they're getting a refund.

According to the Defense Finance and Accounting Service, all W-2 tax forms for active-duty service members were to be available on myPay by Jan. 24. The forms for active-duty Marines were being mailed Jan. 19-21; for sailors, soldiers and airmen, Jan. 24-29.

Taxpayers should be aware that the IRS says it is increasing its scrutiny of tax returns this year, looking for signs of fraud. So some returns will face extra screening, which will add time before the refund is processed.

Even so, the IRS expects to issue refunds in as few as 10 days after receiving a return for those who e-file and use direct deposit for their refund, officials said. The IRS issues more than nine out of 10 refunds within 21 days after receiving the return, regardless of whether the return is filed electronically or on paper.

That's important to remember if you're counting on that money for a specific purpose. There's no need to take out an "anticipation loan" ahead of that refund.

Refund anticipation loans have dried up for service members anyway because of a law protecting troops and their families from these loans if the annual percentage rate is more than 36 percent. While some tax preparers make these loans to other taxpayers, they generally don't make them to troops and families.

If you're anxious about that refund, you can check the status. The fastest way to do that is electronically. Download the free IRS2GO app at the Apple App Store or the Android Marketplace, http://www.irs.gov">or visit the IRS' website, click "Online Tools," then "Where's My Refund."

You can start checking the status of your refund about three days after the IRS acknowledges receipt of your e-filed return, or four weeks after you mail a paper return.

There are no major tax law changes that specifically affect service members and their families this year, according to IRS and defense officials.

Reminders

Chris Cho, an Army veteran who with his wife owns a Liberty Tax Service franchise in New Braunfels, Texas, has some reminders for troops and spouses, based on what he's seen:

• Remember that income is taxable even if it is paid in cash. "A lot of military spouses have part-time income they get in cash," he said, whether it's for a child care business or a business selling items on eBay.

• Income earned in a combat zone is nontaxable, he said, including re-enlistment bonuses when you re-enlist in the combat zone. IRS rules state that you don't have to show the exclusion on your tax return because income that qualifies for the exclusion is not included in wages reported on your W-2 form.

• Many troops get an automatic extension of deadlines for filing and paying taxes. This applies to troops serving in combat zones or performing qualifying service outside a combat zone, and those deployed outside the U.S. while participating in a contingency operation.

Of course, nothing with the IRS is simple, and neither is the policy on this filing extension. The easy part: You get 180 days of extension after the last day you served in a combat zone. The more complex part: You also get an extension equal to the number of days until the filing deadline at the time you deployed.

For example, say you plan to deploy March 1 and return home Dec. 1. With this year's deadline set for April 15, you would get an extension on filing your 2011 taxes of 180 days after your Dec. 1 return, plus another 48 days for the period from March 1 through April 17 — a total extension of 226 days. So you would not have to file your 2011 taxes until well into 2013.

Know your credits

IRS spokeswoman Julianne Fisher Breitbeil said her agency often gets questions on combat pay and Earned Income Tax Credit issues.

The IRS Armed Forces' Tax Guide for use in preparing 2011 returns provides detailed information on these issues http://www.irs.gov/publications/p3/ar02.html">on this webpage. For example, it outlines the types of pay not included in earned income for purposes of the EITC, such as any pay subject to the combat-zone exclusion (unless you decide to include nontaxable combat pay in earned income; the IRS advises you to figure the credit with and without the nontaxable combat pay before you make the decision).

There is a long list of other types of excluded income for EITC purposes, including military housing and food allowances.

Some service members still may qualify for the first-time homebuyer credit of $8,000 or the $6,500 for other homebuyers who were not first-time buyers. In each case, the service member must have been on qualified official extended duty outside the U.S. for at least 90 days after 2008 and before May 1, 2010, and must have bought the residence after 2010 and before May 1, 2011 (before July 1, 2011, if you entered into a written contract to purchase the house before May 1, 2011).

For those who took the initial $7,500 tax credit for first-time homebuyers in 2008, the law required homebuyers to start repaying it in tax year 2010. But if you're in the military and no longer living in that house because of permanent change-of-station orders to more than 50 miles away, you don't have to repay it — even if you still own the house.